Rating Rationale
August 23, 2024 | Mumbai
BMW Ventures Limited
Rating reaffirmed at 'CRISIL BBB+/Stable'
 
Rating Action
Total Bank Loan Facilities RatedRs.300 Crore
Long Term RatingCRISIL BBB+/Stable (Reaffirmed)
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1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL BBB+/Stable’ rating on the long-term bank facilities of BMW Ventures Limited (BVL; part of the BMW group).

 

The rating continues to reflect the extensive experience of the promoters in the steel trading business, the established market position of the group and its moderate financial risk profile. These strengths are partially offset by the modest operating margin due to the trading business and low operating income to gross block ratio.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of BVL and BMW Enterprises (BE; ‘CRISIL BBB/Stable’), together referred to as the BMW group, as the entities have significant business linkages and same promoters.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

  • Extensive experience of the promoters, and established market position: The BMW group has been the sole authorized distributor of long and flat steel products of Tata Steel Ltd (TSL) since its inception. Currently, the group addresses demand in 29 districts of 38 districts, in Patna, Bihar, through its robust distribution network comprising more than 1,000 dealers and institutional buyers. The market position is strongly supported by an estimated turnover of Rs 2,340 crore in fiscal 2024, increasing at compounded annual growth rate of 15%. The extensive experience of the promoters and their established relationship with the key principal, TSL, will continue to support the business.

 

  • Moderate financial risk profile: Healthy networth, estimated at Rs 206 crore on March 31, 2024, supports the capital structure, along with gearing and total outside liabilities to tangible networth ratio of 2.2 times and 2.6 times, respectively, against 1.8 times and 2.2 times, respectively, a year earlier. Increase in debt in fiscal 2024, driven by increased inventory holding to 57 days on March 31, 2024, on account of new stock yard having storage capacity of 20,000 MT, from 43 days on March 31, 2023, led to moderation in leverage ratios. Interest coverage and net cash accrual to adjusted debt ratios are estimated to be moderate at 2.5 times and 0.1 time, respectively, in fiscal 2024. Operations will likely remain working capital intensive over the medium term owing to steady volume sales of long and flat products and diversification into fabrication and erection of steel structures, fleet rentals to Larsen & Toubro Ltd and manufacturing of steel girders, thus requiring huge inventory, investments in fleet and extended credit period. To mitigate the rise in external working capital borrowing, BVL has planned to raise about Rs 175 crore (net) via initial public offering (IPO) in fiscal 2025. Impact of successful IPO and infusion of funds as proposed, Rs 140 crore in fiscal 2025 and the remaining in fiscal 2026, will have a direct bearing on the financial risk profile and will be closely monitored.

 

Weaknesses:

  • Modest operating margin owing to the trading business: The BMW group is engaged in the distribution of long and flat steel products of TSL, which is a dominant player in the steel industry. Hence, despite its longstanding relationship with the principal, the group has limited bargaining power. Furthermore, it faces intense competition because of limited product differentiation, which constrains the spread between purchase and sale prices. Though the group has sustained profitability at 3-4% in the three fiscals through 2024, owing to large inventory management and diversification in other business segments, its profitability remains susceptible to cyclicality in the steel industry.

 

  • Low operating income to gross block ratio: Over the years, the promoters of the BMW group have invested in tangible assets, leading to estimated operating income to gross block ratio of 20-26 times in the three fiscals through 2024, while some of its peers having a ratio of 75-90 times. Though this has translated into operating margin higher than peers and indicates the group’s resourcefulness, this has increased its dependence on external working capital borrowing, limiting financial flexibility in case of business downturn.

Liquidity: Adequate

Bank limit utilization was 88% for the 12 months through June 2024. Cash accrual, expected over Rs 40 crore per fiscal, will sufficiently cover yearly term debt obligation of less than Rs 20 crore over the medium term. In addition, surplus will cushion liquidity. The current ratio is estimated at a moderate 1.3 times as on March 31, 2024.

Outlook: Stable

The BMW group will continue to benefit from its established market position and longstanding relationship with TSL.

Rating Sensitivity factors

Upward factors:

  • Increase in revenue and volume sales and stable operating margin over 3% strengthening the liquidity
  • Decline in external working capital borrowing improving leverage and interest coverage ratio

 

Downward factors:

  • Decline in revenue resulting in interest coverage ratio below 2 times
  • Stretched receivables, pile-up of inventory or large, debt-funded capital expenditure or capital withdrawal constraining liquidity

About the Group

Set up in 1994, BVL is the authorised sole distributor of long and flat steel products of TSL in Patna, Bihar. BE commenced operations in 2005 and its sole proprietor is Jai Basukinath Traders Pvt Ltd, which has been a consignment agent for Tata Tiscon for over two decades. Mr Bijay Kumar Kishorepuria and Mr Nitin Kishorepuria are the key promoters. The group has four stock yards with storage capacity of 53,000 MT.

Key Financial Indicators (Combined & CRISIL Ratings adjusted)

As on / for the period ended March 31

 

2024*

2023

Operating income

Rs crore

2,343.19

2,371,75

Reported profit after tax

Rs crore

36.75

30.49

PAT margins

%

1.6

1.7

Adjusted Debt/Adjusted Net worth

Times

2.16

1.76

Interest coverage

Times

2.45

3.04

*provisional

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs Cr) Complexity Levels Rating Assigned with Outlook
NA Cash Credit NA NA NA 160 NA CRISIL BBB+/Stable
NA Cash Credit NA NA NA 135 NA CRISIL BBB+/Stable
NA Channel Financing NA NA NA 5 NA CRISIL BBB+/Stable

Annexure – List of entities consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

BMW Enterprises

Full

Common management, same business, and financial and operational linkages

BMW Ventures Limited

Full

Common management, same business, and financial and operational linkages
Annexure - Rating History for last 3 Years
  Current 2024 (History) 2023  2022  2021  Start of 2021
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund Based Facilities LT 300.0 CRISIL BBB+/Stable   -- 26-05-23 CRISIL BBB+/Stable 04-02-22 CRISIL BBB/Positive 08-01-21 CRISIL BBB/Stable CRISIL BBB/Stable
      --   -- 05-05-23 CRISIL BBB+/Stable   --   -- --
Non-Fund Based Facilities ST   --   --   -- 04-02-22 CRISIL A3+ 08-01-21 CRISIL A3+ CRISIL A3+
All amounts are in Rs.Cr.
Annexure - Details of Bank Lenders & Facilities
Facility Amount (Rs.Crore) Name of Lender Rating
Cash Credit 160 Punjab National Bank CRISIL BBB+/Stable
Cash Credit 135 HDFC Bank Limited CRISIL BBB+/Stable
Channel Financing 5 The Federal Bank Limited CRISIL BBB+/Stable
Criteria Details
Links to related criteria
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating trading companies
Criteria for rating entities belonging to homogenous groups

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